Mortgage Life Insurance Explained

For many people there’s no financial investment bigger or more important to their financial and emotional security than the mortgage on their family home. But what happens when one spouse dies unexpectedly? Or when a single parent dies leaving their children with an unpaid mortgage to deal with? Unfortunately, the survivors are often left with a mortgage payment that’s just not affordable anymore. That’s when hard choices have to be made.

Mortgage Life Insurance ExplainedMortgage insurance is one way to ensure that no one in your family will have to go through losing a home right after losing a loved one. Keep reading below to learn what mortgage insurance is and how it works.

What is Mortgage Insurance?

Mortgage insurance is a type of term insurance policy specifically intended to cover mortgage costs. Because it is a type of term life insurance, it does not include a cash value component. Mortgage insurance offers the insured the opportunity to protect their most important investment by covering mortgage costs in the event of the insured’s death. It’s a great way to ensure your family’s financial stability continues after you’re gone.

Where Can I Get Mortgage Insurance?

Banks will sometimes offer a mortgage life insurance policy to buyers. It benefits the banks to do this, since a mortgage insurance policy means that the mortgage will still be paid for, even if the primary breadwinner of the family (if this is the insured) dies unexpectedly. Another way to get mortgage life insurance is to get one directly from an insurance company. There are several benefits to purchasing directly from an insurance company including being given the option to select your beneficiary, guaranteed premiums, and the ability to refinance your home with a new lender and retain your coverage.

If you purchase your mortgage insurance policy through your lender, odds are the beneficiary will be the mortgage owner. This means you can’t name a spouse or loved one as the beneficiary. Also, your ability to refinance your home will be restricted, as you won’t be entitled to keep your coverage and will have to start all over again.

Does Mortgage Insurance Replace My Need for Life Insurance?

Mortgage insurance, while helpful to have if you are a homeowner, does not replace the need for a regular life insurance policy. Mortgage insurance aids in paying off the remaining balance on a mortgage; that’s what the pay-out is meant for. Naming someone other than the mortgage lender does allow your beneficiary some more freedom. It can be an excellent way to ensure the surviving family members don’t lose their home and their financial security.

But the primary purpose of life insurance is to replace the income of the deceased. This allows the surviving family members to pay for final expenses and maintain financial security into the future. Life insurance should do more than just pay off a debt, even if that debt is one as large as a mortgage. Those who desire to help their loved ones pay for funeral and burial costs, living costs, and other expenses such as a child’s higher education will need to plan beyond just a mortgage insurance policy.